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☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to ____ . 

Delaware						81-4717861
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

15440 Laguna Canyon Road, Suite 160
Irvine, California						92618
(Address of principal executive offices)						(Zip Code)

Title of each class			Trading Symbol			Name of each exchange on which registered
Common Stock, $0.0001 par value per share			TARS			The Nasdaq Global Market LLC (Nasdaq Global Select Market)

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

Part I - Financial Information			1
Item 1. Financial Statements (Unaudited)			1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			35
Part II - Other Information			36
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 3. Defaults Upon Senior Securities			38
Item 4. Mine Safety Disclosures			38
Item 5. Other Information			38
Item 6. Exhibits			39
Signatures			40

			Pages
Condensed Balance Sheets			F-2
Condensed Statements of Operations and Comprehensive (Loss) Income			F-3
Condensed Statements of Preferred Stock and Stockholders’ Equity			F-4
Condensed Statements of Cash Flows			F-5
Notes to Condensed Financial Statements			F-6

 

			March 31, 2022						December 31, 2021
			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	175,010					$	171,332
Marketable securities			291						483
Accounts receivable			17						—
Other receivables			306						92
Prepaid expenses and other current assets			3,131						4,045
Total current assets			178,755						175,952
Property and equipment, net			915						755
Operating lease right-of-use assets			926						1,074
Other assets			887						1,126
Total assets			$	181,483					$	178,907
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities			$	10,805					$	8,680
Accrued payroll and benefits			1,805						2,798
Total current liabilities			12,610						11,478
Term loan, net			19,180						—
Other long-term liabilities			496						699
Total liabilities			32,286						12,177
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 authorized; no shares issued and outstanding at March 31, 2022 and December 31, 2021			—						—
Common stock, $0.0001 par value; 200,000,000 shares authorized; 20,731,062 shares issued and 20,718,528 outstanding, which excludes 12,534 shares subject to repurchase at March 31, 2022 (unaudited); 20,726,580 shares issued and 20,698,737 outstanding, which excludes 27,840 shares subject to repurchase at December 31, 2021			4						4
Additional paid-in capital			216,103						213,398
Accumulated deficit			(66,910)						(46,672)
Total stockholders’ equity			149,197						166,730
Total liabilities and stockholders’ equity			$	181,483					$	178,907

									Three Months Ended March 31,
															2022						2021
Revenues:
License fees															$	—					$	33,311
Collaboration revenue															539						121
Total revenues															539						33,432
Operating expenses:
Cost of license fees and collaboration revenue															33						1,297
Research and development															12,081						16,261
General and administrative															7,946						5,160
Total operating expenses															20,060						22,718
(Loss) income from operations before other (expense) income and income taxes															(19,521)						10,714
Other (expense) income:
Interest (expense) income, net															(316)						9
Other income (expense), net															37						(34)
Unrealized loss on equity securities															(192)						—
Change in fair value of equity warrants															(245)						—
Total other expense, net															(716)						(25)
Benefit for income taxes															(1)						(313)
Net (loss) income and comprehensive (loss) income															$	(20,238)					$	10,376
Net (loss) per share, basic															$	(0.98)					$	(0.51)
Net (loss) income per share, diluted															$	(0.98)					$	0.47
Weighted-average shares outstanding, basic															20,710,224						20,336,022
Weighted-average shares outstanding, diluted															20,710,224						21,824,574

			Preferred Stock												Common Stock												Additional Paid-In Capital						Accumulated Deficit						Total Stockholders’ Equity
			Shares						Amount						Shares						Amount
Balance as of December 31, 2021			—						$	—					20,698,737						$	4					$	213,398					$	(46,672)					$	166,730
Net loss			—						—						—						—						—						(20,238)						(20,238)
Recognition of stock-based compensation expense			—						—						—						—						2,674						—						2,674
Exercise of vested stock options			—						—						225						—						—						—						—
Issuance of common stock upon the vesting of restricted stock units			—						—						4,257						—						—						—						—
Lapse of repurchase rights related to common stock issued pursuant to stock option exercises prior to vesting			—						—						15,309						—						31						—						31
Balance as of March 31, 2022			—						$	—					20,718,528						$	4					$	216,103					$	(66,910)					$	149,197

			Preferred Stock												Common Stock												Additional Paid-In Capital						Accumulated Deficit						Total Stockholders’ Deficit
			Shares						Amount						Shares						Amount
Balance as of December 31, 2020			—						$	—					20,323,201						$	4					$	198,821					$	(32,845)					$	165,980
Net income			—						—						—						—						—						10,376						10,376
Recognition of stock-based compensation expense			—						—						—						—						1,363						—						1,363
Exercise of vested stock options			—						—						13,773						—						19						—						19
Shares issued as consideration for in-license rights			—						—						187,500						—						5,494						—						5,494
Balance as of March 31, 2021			—						$	—					20,524,474						$	4					$	205,697					(22,469)						$	183,232

			Three Months Ended March 31,
			2022						2021
Cash Flows From Operating Activities:
Net (loss) income			$	(20,238)					$	10,376
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization			41						64
Amortization and accretion of long-term debt related costs			55						—
Stock-based compensation			2,674						1,363
Non-cash lease expense			113						43
Loss on disposal of property and equipment			—						70
Loss on lease termination			—						2
Unrealized loss on equity securities			192						—
Change in fair value of equity warrants			245						—
Unrealized loss (gain) from transactions denominated in a foreign currency			1						(35)
Issuance of common stock pursuant to in-license agreement			—						5,494
Changes in operating assets and liabilities:
Accounts receivable			(17)						(25,000)
Contract asset			—						(7,199)
Other receivables			(225)						(227)
Prepaid expenses and other current assets			926						(321)
Other non-current assets			14						(1,255)
Accounts payable and other accrued liabilities			1,969						5,063
Accrued payroll and benefits			(993)						(355)
Other long-term liabilities			(43)						123
Net cash used in operating activities			(15,286)						(11,794)
Cash Flows From Investing Activities:
Purchases of property and equipment			(161)						(175)
Cash used in investing activities			(161)						(175)
Cash Flows From Financing Activities:
Proceeds from exercise of vested stock options			—						19
Payment of deferred offering costs			(60)						—
Proceeds from term loan			20,000						—
Payment of debt issuance costs			(815)						—
Net cash provided by financing activities			19,125						19
Net decrease in cash, cash equivalents and restricted cash			3,678						(11,950)
Cash, cash equivalents, and restricted cash — beginning of period			171,332						168,149
Cash, cash equivalents, and restricted cash — end of period			$	175,010					$	156,199
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents			$	175,010					$	156,179
Restricted cash			—						20
Cash, cash equivalents and restricted cash			$	175,010					$	156,199
Supplemental Disclosures Noncash Investing and Financing Activities:
"Interest expense" paid in cash			$	127					$	—
Additions of "property and equipment, net" included within "accounts payable and other accrued liabilities"			$	41					$	—
Expensing of "operating lease right-of-use assets" upon lease termination			$	—					$	(38)
Stock issued for in-license agreements			$	—					$	5,494
Deferred offering costs included within "accounts payable and accrued liabilities"			$	55					$	—

The Company has no product sales and has accumulated losses and negative cash flows from operations since inception (other than consideration received from an out-licensing agreement, as discussed in Note 9), resulting in an accumulated deficit of $66.9 million as of March 31, 2022 and $46.7 million as of December 31, 2021. The Company’s cash and cash equivalents were $175.0 million and $171.3 million as of March 31, 2022 and December 31, 2021, respectively. The Company expects to continue to incur operating losses and negative cash flows.

On February 2, 2022, the Company executed a loan and security agreement (the "Credit Facility") with Hercules Capital, Inc. ("Hercules") and Silicon Valley Bank ("SVB"). This $175 million Credit Facility has tranched availability. Capital draws are at the Company's election and are in $5 million increments. In February 2022, the Company made a $20 million draw (see Note 10).

The Company’s Condensed Financial Statements have been prepared in conformity with accounting principles generally accepted ("GAAP") in the United States ("U.S.") for interim financial information and pursuant to Form 10-Q and with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, the accompanying Condensed Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements.

Marketable securities represent LianBio Ophthalmology Limited ("LianBio") common stock (see Note 7) designated as "available-for-sale securities" with associated gains or losses recorded within "other expense, net" within the Condensed Statements of Operations at each reporting period.

The Company currently has one out-license arrangement that allows the third-party licensee to market the its TP-03 product candidate (representing "functional intellectual property") in certain territories for a certain field of use and for a stated term - see Note 9. The accounting and reporting of revenue for out-license arrangements requires significant judgment for: (a) identification of the number of performance obligations within the contract, (b) the contract’s transaction price for allocation (including variable consideration), (c) the stand-alone selling price for each identified performance obligation, and (d) the timing and amount of revenue recognition in each period.

The Company's out-license arrangement, as described in Note 9, was analyzed under GAAP to determine whether the promised goods or services (which include the license, and know-how, data, and information necessary or reasonably useful for the research, development, manufacture, or commercialization of any license product, and governance committee services) are distinct or must be accounted for as part of a combined performance obligation. In making these assessments, the Company considers factors such as the stage of development of the underlying intellectual property and the capabilities of the customer to develop the intellectual property on their own, and/or whether the required expertise is readily available. If the license is considered to not be distinct, the license is combined with other promised goods or services as a combined performance obligation for revenue recognition.

(1) Upfront License Fees: The Company determines whether non-refundable license fee consideration is recognized at the time of contract execution (i.e., when the license is transferred to the customer and customer is able to use and benefit from the license) or over the actual (or implied) contractual period of the out-license. The Company also evaluates whether it has any other requirements to provide substantive services that are inseparable from the performance obligation of the license transfer to determine whether any combined performance obligation is satisfied over time or at a point in time. Upfront payments may require deferral of revenue recognition to a future period until the Company performs obligations under these arrangements.

(2) Development Milestones: The Company utilizes the “most likely amount” method to estimate the amount of consideration to which it will be entitled for achievement of development milestones as these represent variable consideration. For those payments based on development milestones (e.g., patient dosing in a clinical study or the achievement of statistically significant clinical results), the Company assesses the probability that the milestone will be achieved, including its ability to control the timing or likelihood of achievement, and any associated revenue constraint. Given the high degree of uncertainty around the occurrence of these events, the Company determined the milestone and other contingent amounts to be "constrained" until the uncertainty associated with these payments is resolved. At each reporting period, the Company re-evaluates this associated revenue recognition constraint. Any resulting adjustments are recorded to revenue on a cumulative catch-up basis, and reflected in the financial statements in the period of adjustment.

(3) Regulatory Milestones: The Company utilizes the “most likely amount” method to estimate the consideration to which it will be entitled and recognizes revenue in the period regulatory approval occurs (the performance obligation is satisfied) as these represent variable consideration. Amounts constrained as variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company evaluates whether the milestones are considered probable of being reached and not otherwise constrained. Accordingly, due to the inherent uncertainty of achieving regulatory approval, associated milestones are constrained for revenue recognition until achievement.

(4) Royalties: Under the "sales-or-usage-based royalty exception" the Company recognizes revenue based on the contractual percentage of the licensee’s sale of products to its customers at the later of (i) the occurrence of the related product sales or (ii) the date upon which the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, the Company has not recognized any royalty revenue from its out-licensing arrangements.

(5) Sales Threshold Milestones: Similar to royalties, applying the "sales-or-usage-based royalty exception", the Company recognizes revenue from sales threshold milestones at the later of (i) the period the licensee achieves the one-time annual product sales levels in their territories for which the Company is contractually entitled to a specified lump-sum receipt, or (ii) the date upon which the performance obligation to which some or all of the milestone has been allocated has been satisfied or partially satisfied. To date, the Company has not recognized any sales threshold milestone revenue from out-licensing arrangements.

The Company has entered, and may continue to enter into, license agreements to access and utilize intellectual property for drug development. In each case, the Company evaluates if the assets acquired in a transaction represent the acquisition of an asset or a business, as defined under applicable GAAP. The Company’s executed in-license agreements (see Note 8(b)) were evaluated and determined to represent asset acquisitions. Because these assets have not yet received regulatory approval and have no alternative future use, the purchase price for each was immediately recognized as research and development expense. In addition, any future milestone payments (whether in the form of cash or stock) made before product regulatory approval (that do not meet the definition of a derivative) will also be immediately recognized as research and development expense when paid or becomes payable, provided there is no alternative future use of the rights in other research and development projects.

•Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that are publicly accessible at the measurement date.

•Level 2: Observable prices that are based on inputs not quoted on active markets, but that are corroborated by market data. These inputs may include quoted prices for similar assets or liabilities or quoted market prices in markets that are not active to the general public.

•Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts for financial instruments consisting of cash and cash equivalents, accounts payable and accrued liabilities approximate fair value due to their short maturities. The Company's equity warrant holdings are carried at fair value based on unobservable market inputs (see Note 7).

			March 31, 2022						December 31, 2021
Furniture and fixtures			$	596					$	596
Office equipment			84						84
Laboratory equipment			167						167
Leasehold improvements			330						129
Property and equipment, at cost			1,177						976
(Less): Accumulated depreciation and amortization			262						221
Property and equipment, net			$	915					$	755

			March 31, 2022						December 31, 2021
Deposits			$	71					$	71
Equity warrants (Note 7)			418						663
Other long term assets			398						392
Other assets			$	887					$	1,126

			March 31, 2022						December 31, 2021
Trade accounts payable and other			$	4,028					$	2,856
Operating lease liability, current			635						609
Accrued clinical studies			5,740						4,407
Contract liability			174						697
Accrued interest, current			148						—
Income taxes payable			55						55
Employee stock option pre-vesting exercise liability, current portion			25						56
Accounts payable and other accrued liabilities			$	10,805					$	8,680

			March 31, 2022						December 31, 2021
Operating lease liability, non-current			$	425					$	585
Derivative liability			71						114
Other long-term liabilities			$	496					$	699

			March 31, 2022						December 31, 2021
Common stock awards reserved for future issuance under 2020 and 2016 Equity Incentive Plans			8,954,066						9,266,200
Common stock awards reserved for future issuance under the 2020 Employee Stock Purchase Plan			2,700,475						2,493,488
Stock options issued and outstanding under 2020 and 2016 Equity Incentive Plans			3,561,261						2,759,830
Restricted stock units outstanding under 2020 Equity Incentive Plan			351,422						17,251
Total shares of common stock reserved			15,567,224						14,536,769

The Company's Board of Directors and stockholders adopted and approved the Company's 2020 Equity Incentive Plan (the “2020 Plan”) on October 8, 2020. The 2020 Plan replaced the Company's 2016 Equity Incentive Plan that was adopted in December 2016 (the “2016 Plan”). However, awards outstanding under the 2016 Plan will continue to be governed by its original terms. The number of shares of the Company's common stock that were initially available for issuance under the 2020 Plan equaled the initial sum of 9,000,000 shares plus 2,432,980 shares that were then available for issuance under the 2016 Plan. The 2020 Plan provides for the following types of awards: incentive and non-statutory stock options, stock appreciation rights, restricted shares, and restricted stock units.

The number of shares of common stock reserved for issuance under the 2020 Plan are increased automatically on the first day of each fiscal year, commencing in 2021 and through 2030, by a number equal to the lesser of: (i) 4% of the shares of common stock outstanding on the last day of the prior fiscal year; or (ii) the number of shares determined by the Company's Board of Directors. In general, to the extent that any awards under the 2020 or 2016 Plans are forfeited, terminate, expire or lapse without the issuance of shares, or if the Company reacquires the shares subject to awards granted under the 2020 or 2016 Plans, those shares will again become available for issuance under the 2020 Plan, as will shares applied to pay the exercise or purchase price of an award or to satisfy tax withholding obligations related to any award.

Under the terms of the ESPP, eligible employees can purchase common stock through scheduled payroll deductions. The purchase price is equal to the closing price of the Company's common stock on the first or last day of the offering period (whichever is less), minus a 15% discount.

			Three months ended March 31,
			2022						2021
Research and development			$	678					$	344
General and administrative			1,996						1,019
Total stock-based compensation			$	2,674					$	1,363

The following table sets forth the computation of basic and diluted net (loss) income per share:

									Three Months Ended March 31,
															2022						2021
Basic EPS
Net (loss) income															$	(20,238)					$	10,376
Less: undistributed income allocated to participating securities															—						90
Net (loss) income available to common shareholders															$	(20,238)					$	10,286
Basic weighted average shares outstanding															20,710,224						20,336,022
Net (loss) per share—basic															$	(0.98)					$	(0.51)
Diluted EPS
Net (loss) income															$	(20,238)					$	10,376
Less: undistributed income reallocated to participating securities															—						84
Net (loss) income available to common shareholders															$	(20,238)					$	10,292
Basic weighted average shares outstanding															20,710,224						20,336,022
Effect of dilutive securities:
Common stock options															—						1,488,552
Diluted weighted average shares outstanding															20,710,224						21,824,574
Net (loss) income per share—diluted															$	(0.98)					$	0.47

			Three Months Ended March 31,
			2022						2021
Stock options, unexercised—vested and unvested			3,561,261						632,781
Stock options early-exercised and unvested			12,531						—
Restricted stock units—unvested			351,422						—
Total			3,925,214						632,781

The table below summarizes certain financial instruments measured at fair value that are included within the accompanying balance sheets, and their designation among the three fair value measurement categories (see Note 2(ix)):

			March 31, 2022 Fair Value Measurements
			Level 1						Level 2						Level 3						Total
Assets:
Money market funds			$	175,010					$	—					$	—					$	175,010
Common stock in LianBio (included in "marketable securities")			291						—						—						291
Equity warrants in LianBio (included in "other assets")			—						—						418						418
Total assets measured at fair value			$	175,301					$	—					$	418					$	175,719
			December 31, 2021 Fair Value Measurements
			Level 1						Level 2						Level 3						Total
Assets:
Money market funds			$	171,332					—						—						$	171,332
Common stock in LianBio (included in "marketable securities")			483						—						—						$	483
Equity warrants in LianBio (included in "other assets")			—						—						663						$	663
Total assets measured at fair value			$	171,815					$	—					$	663					$	172,478

Money market fund holdings are included in "cash and cash equivalents" on the accompanying Condensed Balance Sheets and are classified within Level 1 of the fair value hierarchy because they have readily-available market prices in active markets that are publicly observable at the measurement date. These money market funds are invested in U.S. Treasury bills and notes, and other obligations issued or guaranteed as to principal and interest by the U.S. Government or its agencies.

In March 2021, contemporaneous with the China Out-License transaction (see Note 9), the Company and LianBio, executed a warrant agreement for the Company to purchase, in three tranches, a stated number of common stock in LianBio, a then privately-held pharmaceutical company focused on China. The warrants vest upon the achievement of certain clinical and regulatory events and have an exercise price at common stock par value.

During the year ended December 31, 2021, one of these three warrants vested and converted to 78,373 shares of LianBio common stock ("equity securities") which were recorded within "marketable securities" on the accompanying Balance Sheet as of December 31, 2021. The LianBio common stock is classified within Level 1 of the fair value hierarchy because their value is based on the closing common stock price of LianBio.

The remaining two unvested tranches of these warrants are classified as Level 3 in the fair value measurement hierarchy. The most significant assumptions used in the option pricing valuation model to determine the fair value as of March 31, 2022 included: LianBio common stock volatility (based on the historical volatility of similar companies), the probability of achievement of discrete clinical and regulatory milestones for the remaining two unvested tranches of these warrants, and application of an assumed discount rate for the unvested warrants as of March 31, 2022.

These warrants allow for "noncash settlement" and therefore met the criteria to be recognized as a "derivative asset" on the accompanying Condensed Balance Sheets and are presented within "other assets" as of March 31, 2022 (see Note 3(b)). They will be remeasured with a corresponding amount reported in "other expense, net" on the accompanying statements of operations and comprehensive (loss) income at each reporting date, until exercised or expired.

The following table sets forth a summary of the changes in fair value of the equity warrants presented in "other assets" on the accompanying Condensed Balance Sheets. The measurement of the equity warrants represents a Level 3 financial instrument:

			Equity Warrants, presented on the Balance Sheets
Fair value as of December 31, 2021			$	663
Revaluation of equity warrants included in "total revenues" within the Condensed Statement of Operations for the three months ended March 31, 2022			$	—
Revaluation of equity warrants included in "other expense, net" within the Condensed Statement of Operations for the three months ended March 31, 2022			$	(245)
Fair value as of March 31, 2022			$	418

			Equity Warrants, presented on the Balance Sheets
Fair value as of December 31, 2020			$	—
Initial fair value estimate of equity warrants (included in "other assets" within the Consolidated Balance Sheet) upon issuance			1,233
Fair value as of March 31, 2021			$	1,233

Operating Leases						Consolidated Balance Sheet Caption						March 31, 2022						December 31, 2021
Operating lease right-of-use assets - non-current						Operating lease right-of-use assets						$	926					$	1,074
Operating lease liability - current						Accounts payable and other accrued liabilities						$	635					$	609
Operating lease liability - non-current						Other long-term liabilities						425						585
Total lease liabilities												$	1,060					$	1,194

			Three months ended March 31,
			2022						2021
Operating lease cost			$	143					$	60
Variable lease cost			39						60
Short-term lease cost			—						32
Total lease cost			$	182					$	152

Operating Leases - Future Payments			March 31, 2022
2022 (remaining nine months)			$	349
2023			761
2024			65
2025			—
2026			—
Total future lease payments, undiscounted			$	1,175
(Less): Imputed interest			(115)
Present value of operating lease payments			$	1,060

As part of the China Out-License discussed in Note 9, the Company made a contractual payment in the amount of $2.5 million to Elanco following the receipt of $25 million of initial proceeds from LianBio during the second quarter of 2021.

In March 2021, the Company entered into the China Out-License agreement with LianBio (see Note 9), which obligated it to grant Elanco an additional fixed 187,500 shares of the Company's common stock that were otherwise required to be granted no later than the 18-month anniversary of the All Human Uses Elanco Agreement for the Company's continued license exclusivity. These additional shares were valued at $5.5 million based on the Company's stock closing price of $29.30 per share (on the date the issuance became contractually required) and were reported within "research and development" expense within the accompanying Condensed Statements of Operations and Comprehensive (Loss) Income for the three months ended March 31, 2021.

The Company recognized no "license fees" and $0.5 million "collaboration revenue" for the three months ended March 31, 2022 in the accompanying Condensed Statements of Operations and Comprehensive (Loss) Income, in accordance with the revenue recognition accounting policy described in Note 2(vii). These amounts represent an allocation of the transaction price based upon the partial satisfaction of the performance obligations in the China Out-License.

These revenue amounts are each recognized upon satisfaction of the following performance obligations (i) the transfer of TP-03 license rights in the China Territory to LianBio and (ii) the actual or partial completion of clinical activities and related data for the Company's pivotal trials of TP-03 in the treatment of Demodex blepharitis. As part of this revenue recognition model, the Company was required to value the LianBio equity warrants, applying a discounted cash flow model with highly subjective inputs for this then private, pre-revenue company, and also considered the probability of achievement of requisite vesting events. Subsequent adjustments to the estimated initial fair value of these warrants are reported within "total revenues" and "other (expense) income" on the accompanying Condensed Statements of Operations for the three months ended March 31, 2022. The first tranche of these warrants vested and were exercised to LianBio common shares and are reported within "marketable securities" on the accompanying Condensed Balance Sheets as of December 31, 2021 and March 31, 2022 (See Note 7).

Principal draws accrue interest on the outstanding principal balance at a floating interest rate per annum equal to the greater of either (i) The Wall Street Journal prime rate plus 5.20% or (ii) 8.45%. At execution of the Credit Facility, the interest rate was 8.45%. On March 17, 2022 this prime rate increased to 3.50% and the Credit Facility interest rate increased to 8.70%. The Credit Facility interest rate further increased to 9.20% on May 5, 2022 based on the updated Wall Street Journal prime rate.

The Company is required to pay a fee upon the earlier of (i) the maturity date or (ii) the date the Company prepays, in full or in part, the outstanding principal balance of the Credit Facility ("End of Term Charge"). The current End of Term Charge of $1.0 million was derived at the execution of the Credit Facility by multiplying 4.75% to the $20.0 million drawn at closing and is accreted to "accrued interest" through the maturity date of the Credit Facility.

As of March 31, 2022, the carrying value of this debt consisted of $20.0 million principal outstanding less debt issuance costs of approximately $0.9 million. These incurred legal and administrative fees were recorded as a "contra-liability" and accreted to interest expense using the "effective interest method" over the loan term.

			March 31, 2022
Interest expense for term loan			$	274
Accretion of End of Term Charge			32
Amortization of debt issuance costs			23
Total interest expense related to term loan			$	329

			March 31, 2022
Term loan, gross (amount drawn)			$	20,000
Debt issuance costs (legal and other administrative fees)			(875)
Accretion of End of Term Charge			32
Accumulated amortization of debt issuance costs			23
Term loan, net			$	19,180

On May 5, 2022, the Company completed a follow-on public offering, pursuant to the Company's effective Form S-3 shelf registration statement, through an underwritten sale of 5,600,000 shares of its common stock at a price of $13.50 per share. This resulted in gross proceeds of $75.6 million before underwriting discounts, commissions, and estimated expenses, for net proceeds of approximately $70.6 million. The Company also granted the underwriters a 30-day option to purchase up to 840,000 additional shares of common stock at the public offering price, less discounts, commissions, and estimated expenses.

•the likelihood of our clinical trials demonstrating safety and efficacy of our product candidates, and other positive results;

•the timing and progress of our current clinical trials and timing of initiation of our future clinical trials, and the reporting of data from our current and future trials;

•our plans relating to the clinical development of our current and future product candidates, including the size, number and disease areas to be evaluated;

•the prevalence of Demodex blepharitis and the size of the market opportunity for our product candidates;

•the rate and degree of market acceptance and clinical utility of our product candidates;

•our plans relating to commercializing our product candidates, if approved, including sales strategy;

•the impact of COVID-19 on our business and operations;

•the success of competing therapies that are or may become available;

•our estimates of the number of patients in the United States ("U.S.") or globally, as applicable, who suffer from Demodex blepharitis, Meibomian Gland Disease ("MGD"), rosacea, Lyme disease and malaria and the number of patients that will enroll in our clinical trials;

•the beneficial characteristics, safety, efficacy, therapeutic effects and potential advantages of our product candidates;

•the timing or likelihood of regulatory filings and approval for our product candidates;

•our ability to obtain and maintain regulatory approval of our product candidates and our product candidates to meet existing or future regulatory standards;

•our plans relating to the further development and manufacturing of our product candidates, including additional indications for which we may pursue;

•our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;

•the expected potential benefits of strategic collaborations with third parties (including, for example, the receipt of payments, achievement and timing of milestones under license agreements, and the ability of our third party collaborators to commercialize our product candidates in the territories under license) and our ability to attract collaborators with development, regulatory and commercialization expertise;

•existing regulations and regulatory developments in the U.S. and other jurisdictions;

•our plans and ability to obtain or protect intellectual property rights, including extensions of existing patent terms where available;

•our continued reliance on third parties to conduct additional clinical trials of our product candidates, and for the manufacture of our product candidates for preclinical studies and clinical trials;

•the need to hire additional personnel, in particular sales personnel, and our ability to attract and retain such personnel;

•the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

•our financial performance;

•the sufficiency of our existing capital resources to fund our future operating expenses and capital expenditure requirements;

•our competitive position;

•our expectations regarding the period during which we will qualify as an emerging growth company under the JOBS Act; and

•our anticipated use of our existing resources and the proceeds from our Initial Public Offering ("IPO") and Follow-on Public Offering (defined below).

We designed TP-03 to target and eradicate the root cause of Demodex blepharitis — Demodex mite infestation. The active pharmaceutical ingredient ("API") of TP-03, lotilaner, paralyzes and eradicates mites and other parasites through the inhibition of parasite-specific gamma-aminobutyric acid-gated chloride ("GABA-Cl") channels.

Credit Facility with Hercules Capital and Silicon Valley Bank: On February 2, 2022, we executed a loan and security agreement with Hercules Capital and Silicon Valley Bank (the "Credit Facility). This $175 million Credit Facility has tranched availability as follows:

Follow-on Public Offering: On May 5, 2022, we completed a follow-on public offering, pursuant to our effective Form S-3 shelf registration statement, through an underwritten sale of 5.6 million shares of our common stock at a price to the public of $13.50 per share. Gross proceeds were $75.6 million before underwriting discounts, commissions, and estimated expenses. We granted the underwriters a 30-day option to purchase up to 840,000 additional shares of common stock at the public offering price, less discounts, commissions, and estimated expenses.

•conduct and complete clinical activities for our lead product candidate, TP-03, for the treatment of Demodex blepharitis including our Phase 3 trial, Saturn-2;

•advance the clinical development of TP-03 for the potential treatment of MGD, TP-04 for the potential treatment of rosacea and TP-05 for potential Lyme prophylaxis and community malaria reduction;

•seek regulatory and marketing approvals for product candidates that successfully complete clinical development, if any;

•establish our own sales force in the U.S. to commercialize our products for which we obtain regulatory approval;

•engage with contract manufacturers to ensure a sufficient supply chain capacity to provide commercial quantities of any products for which we may obtain marketing approval;

•maintain, expand and protect our intellectual property portfolio;

•hire additional staff, including clinical, scientific, technical, regulatory, marketing, operations, financial, and other support personnel, to execute our business plan; and

•add information systems and personnel to support our product development and potential future commercialization efforts, and to enable us to operate as a public company.

We do not have any products approved for sale and we have not yet generated any revenue from product sales. However, we recognized "license fees" and "collaboration revenue" from our China Out-License for the three months ended March 31, 2022 and 2021 for an aggregate $0.5 million and $33.4 million, respectively (see Note 9), and expect to recognize additional revenue under these captions from this arrangement in future periods.

See the section titled Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 14, 2022 and in this Quarterly Report, for a further discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition.

			Three Months Ended March 31,												Change
			2022						2021
			(in thousands)
Revenues:
License fees			$	—					$	33,311					$	(33,311)
Collaboration revenue			539						121						418
Total revenues			539						33,432						(32,893)
Operating expenses:
Cost of license fees and collaboration revenue			33						1,297						(1,264)
Research and development			12,081						16,261						(4,180)
General and administrative			7,946						5,160						2,786
Total operating expenses			20,060						22,718						(2,658)
(Loss) income from operations before other (expense) income and income taxes			(19,521)						10,714						(30,235)
Other (expense) income:
Interest (expense) income, net			(316)						9						(325)
Other income (expense), net			37						(34)						71
Unrealized loss on equity securities			(192)						—						(192)
Change in fair value of equity warrants			(245)						—						(245)
Total other expense, net			(716)						(25)						(691)
Benefit for income taxes			(1)						(313)						312
Net (loss) income and comprehensive (loss) income			$	(20,238)					$	10,376					$	(30,614)

License fees and collaboration revenue was $0.5 million for the three months ended March 31, 2022. This amount was attributable to the contractual milestones under the China Out-License (see Note 9) that have been fully or partially completed by March 31, 2022. These amounts represent the satisfaction of the transfer of TP-03 license rights to LianBio and the partial completion of clinical-related "performance obligations".

To date, we have received $55 million of total proceeds in connection with our China Out-License (see Note 9). We expect to receive an additional $30 million during 2022 for the achievement of certain clinical development milestones (inclusive of our Saturn-2 topline data milestone of $15 million that was achieved in May 2022) for aggregate milestone receipts through December 2022 of $85 million. The remaining $120 million of potential milestones under this out-license will be received upon future clinical, regulatory and sales achievements within the China Territory.

• $40 million at closing ($20 million drawn and $20 million available)

• $25 million upon NDA submission of TP-03

• $35 million upon FDA approval of TP-03

• $50 million upon achievement of certain quarterly revenue thresholds

• $25 million with lender approval

On November 1, 2021, we filed a shelf registration statement (the “Shelf Registration Statement”) on Form S-3 with the SEC (that was declared effective by the SEC on November 5, 2021), which permits us to offer up to $300.0 million of common stock, preferred stock, debt securities and warrants in one or more offerings and in any combination, including in units from time to time. Our Shelf Registration Statement is intended to provide us with additional flexibility to access capital markets for general corporate purposes, which may include working capital, capital expenditures, other corporate expenses and acquisitions of complementary products, technologies, or businesses. As part of this Shelf Registration Statement, we also filed a sales agreement prospectus covering the sale of up to $100 million of our common stock pursuant to an Open Market Sale AgreementTM (the “Sale Agreement”) with Jefferies LLC. Through the date of this filing, we have not sold any shares of our common stock in at the market transactions pursuant to the Sale Agreement. We conducted the Follow-on Public Offering pursuant to this Shelf Registration Statement.

•the scope, timing, rate of progress and costs of our drug discovery efforts, preclinical development activities, laboratory testing and clinical trials for our product candidates;

•the number and scope of clinical programs we decide to pursue;

•the cost, timing and outcome of preparing for and undergoing regulatory review of our product candidates;

•the scope and costs of development and commercial manufacturing activities;

•the cost and timing associated with commercializing our product candidates, if they receive marketing approval;

•the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;

•the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we might have at such time and availability under our Credit Facility;

•the extent to which we acquire or in-license other product candidates and technologies;

•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

•our ability to establish and maintain collaborations on favorable terms, if at all;

•our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates and, ultimately, the sale of our products, following FDA approval;

•our implementation of various computerized information systems;

•impact of COVID-19 on our clinical development or operations; and

•the costs associated with being a public company.

			Three Months Ended March 31,
			2022						2021
			(in thousands)
Net cash provided by (used in) :
Operating activities			$	(15,286)					$	(11,794)
Investing activities			(161)						(175)
Financing activities			19,125						19
Net increase in cash, cash equivalents and restricted cash			$	3,678					$	(11,950)

Net cash used in investing activities was $0.2 million for the three months ended March 31, 2021, which consisted of purchases of property and equipment and leasehold improvements for our laboratory and administrative offices.

We will remain an emerging growth company until the earliest of (1) the last day of our first fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenues of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million of the prior June 30th and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of March 31, 2022, we had cash and cash equivalents of $175.0 million, consisting of interest-bearing money market accounts, for which the fair market value would be affected by changes in the general level of United States interest rates. However, due to the short-term maturities and the low-risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash and cash equivalents. As of March 31, 2022, we had $19.2 million in variable rate debt outstanding. Our Credit Facility bears interest at an annual rate equal to the greater of (i) the Wall Street Journal prime rate plus 5.20% or (ii) 8.45%. A hypothetical change in interest rate of 10% would have resulted in a nominal change in interest expense for the three months ended March 31, 2022.

•			we may experience delays in or failure to reach agreement on acceptable terms with prospective CROs, vendors and clinical sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs, vendors and trial sites;

•			we may fail to obtain sufficient enrollment in our clinical trials, our enrollment needs may grow larger than we anticipate, or participants may fail to complete our clinical trials at a higher rate than we anticipate;

•			clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

•			we may decide, or regulators or institutional review boards or ethics committees may require us, to suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

•			regulators or institutional review boards or ethics committees may not authorize us or our investigators to commence a clinical trial at a prospective clinical trial site or at all or may require us to perform additional or unanticipated clinical trials to obtain approval or we may be subject to additional post-marketing testing requirements to maintain regulatory approval;

•			regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate;

•			the cost of clinical trials of our product candidates may be greater than we anticipate, and we may need to delay or suspend one or more trials until we complete additional financing transactions or otherwise receive adequate funding;

•			the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate or may be delayed;

•			our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards or ethics committees to suspend or terminate trials;

•			regulatory authorities may determine that the planned design of our clinical trials is flawed or inadequate;

•			regulatory authorities may suspend or withdraw their approval of a product or impose restrictions on its distribution;

•			we may not be able to timely or at all obtain Investigational New Drug ("IND") treatment for a product candidate;

•			we may modify a preclinical study or clinical trial protocol;

•			third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

•			we may be unable to establish clinical endpoints that applicable regulatory authorities consider clinically meaningful, or, if we seek accelerated approval, biomarker efficacy endpoints that applicable regulatory authorities consider likely to predict clinical benefit;

•			we may experience delays due to the ongoing COVID-19 pandemic, including with respect to the conduct of ongoing clinical trials, receipt of product candidates or other materials, submission of NDAs, filing of IND applications, and starting any clinical trials for other indications or programs; and

•			we may experience manufacturing delays due to the recent COVID-19 pandemic in our supply chain caused by a shortage of raw materials, a lack of employees on site at our suppliers due to illness, or a lack of productivity at our suppliers due to local or national government quarantine restrictions on coming to the workplace.

•			incur unplanned costs;

•			be delayed in obtaining marketing approval for our product candidates;

•			not obtain marketing approval at all;

•			obtain marketing approval in some countries and not in others;

•			obtain approval for indications or patient populations that are not as broad as intended or desired;

•			obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;

•			be subject to additional post-marketing testing requirements; or

•			have the product removed from the market after obtaining marketing approval.

Exhibit Number

Description

Form

File Number

Incorporated by Reference Exhibit

Date

Filed Herewith

10.1

Loan and Security Agreement, dated February 2, 2022, by and among Registrant, Hercules Capital, Inc. and Silicon Valley Bank.

X

10.2

Consulting Agreement, dated August 1, 2020, between the Registrant and Elizabeth Yeu-Lin, M.D., as amended

X

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

32.1*

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

32.2*

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

101.INS

Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

X

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

X

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

X

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

X

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

X

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

X

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

X

*			The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Tarsus Pharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

Date:			May 11, 2022

TARSUS PHARMACEUTICALS, INC.
/s/ Bobak Azamian, M.D., Ph.D.
Bobak Azamian, M.D., Ph.D.
President and Chief Executive Officer
(Principal Executive Director)

Date:			May 11, 2022

/s/ Leonard M. Greenstein
Leonard M. Greenstein
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)